By Christopher Vowles

A business valuation determines the market value of your business. Before we start, it’s important to know the difference between an appraisal for marketing purposes and an RICS (Royal Institution of Chartered Surveyors) registered valuation fulfilled by members of the RICS (MRICS). 

The value drawn from a market appraisal is based on what a selling agent considers they could achieve from the open market, rather than being based purely on market evidence from previous transactions (comparable evidence).

An RICS registered valuation is defined as, “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller, in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”. More importantly for our purposes, an opinion of market value fulfilled by an RICS registered valuer is also the only recognised opinion that a lending institution would consider for loan security.  

GETTING READY FOR YOUR VALUATION

Assess your valuation needs Whether you are buying or selling, looking to expand, want to secure investment or perhaps get your business valued for tax purposes, each scenario may demand a different approach or valuation service. In the majority of cases, pharmacies will be valued under the profits method. 

Gather data Collecting all of the correct information for your surveyor is key for an accurate opinion of value. Drafting a brief history of your pharmacy can be a good starting point, as it will give the surveyor an overview of the business’s historic and current trading profile. 

Under the profits method of valuation, all financial information is essential. We would ask for a minimum of three years’ profit and loss accounts, together with any current management information. This will allow the surveyor to assess the historic KPIs of the business across turnover, gross profit, wage costs, running costs and, most importantly, the net and adjusted net profits. 

More specifically, as most prescription processing is obtained from FP34s, we would ask for the last 12 months’ in order for an assessment of average items and average item values of the pharmacy to be made. Staff information, lease documentation and, most recently, utility costs are also key.  

Accentuating the positives (and negatives) Valuing the strengths of your business as well as where your business may need improvement is important and should not be underestimated. Consider factors such as the location, the number of competitors in the area and whether your pharmacy has the most up-to-date procedures. Above all, prepare to be transparent about your business.

Having a good understanding of the market will also help you to prepare. The pharmacy sector offers a unique challenge for RICS registered valuers. In a market experiencing constant and rapid change, many factors can affect value, including ownership, income mix, items prescribed, origins of those items, gross profits, proximity to surgeries, over the counter sales and any additional services offered.

GETTING THE RIGHT TEAM

When trying to understand what a pharmacy is worth, achieving an opinion of market value from an RICS registered valuer will always be extremely beneficial. 

RICS formal valuations are regulated by the RICS and should be carried out by suitably qualified registered valuers, with experience in the sector and exposure to the transactional markets, as solid sales evidence underpins all valuations. 

Christopher Vowles is head of valuation – medical, Christie & Co